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The CBOE Correlation
Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ
measures the implied movement of the S&P 500 components options, compared
to the implied movement of the S&P 500 index options. Simply put, the
higher the number, the more likely all stocks are going to move together.
Conversely, a low number will be characterized by sector rotation, and flat
markets; one sector moves higher, another moves lower. Correlation, for lack of
a better term, is correlated with volatility. Not surprisingly, 30-day S&P
500 historical volatility is near the low level of 6.5%. Currently at
33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but
not lower than where Lindsay Lohan was in 2007).
So far this year, the market
has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector
rotation. As the summer hit, FANG has slowed with GOOGL and AMZN hitting…

Last week the Federal Open Market Committee surprised no one
when they raised rates 0.25 basis points to increase rates to between 1% and
1.25%. What did surprise the market, was the revelation that the FED is
committed to normalize rates, even if inflation does not meet their
target. This was reiterated this week in a speech by William Dudley,
President of the Federal Reserve Bank of New York, who stated he feels the FED
needs to raise rates, despite low inflation, to be ready to act if the economy
does slow down.
The market has been quick to respond, and nothing was hit
harder by a reduction in inflation expectations than commodities. Gold, since the announcement, is lower by 2.39%, and oil is down -3.18%. Crude
futures have broken their upward trend line and appear poised to test the
previous low of $39.56.
While, oil has been under pressure all year, the S&P 500
does not seem to care, as it continues to make all-time highs. Oil is
down 23% year to date, while the S&P…

“What the eyes see and the ears hear, the mind believes.” Harry Houdini Today is the day volatility traders have been eagerly
waiting for, that is of course Fed Day!
And it is not just any Fed Day, it is the most important Fed meeting
since the last Fed meeting. That is of
course hyperbole, and if there is one thing financial news loves, it’s exactly
that. The Fed is overwhelmingly expected to raise
rates, but every time we have the most important Fed meeting since the last Fed
meeting, we need to remember the Fed mission.
The Federal Reserve Mission is to promote maximum employment while at
the same time keeping prices stable. In laymen’s terms, high jobs and low
inflation. Those two goals are of
course at odds with each other-- as the economy heats up, so will
inflation. So how does the Fed achieve
its mission on a day where rates are expected to rise? They act like a parent who went to Phish
concerts in college and tells their children not to do drugs. Yes, the Fed wil…

Today we are seeing a modest rebound in the market after yesterday’s small selloff. Volatility remains extremely low, with the VIX hovering around 10. It’s important for traders to recognize how low the VIX has been lately. Since 2010, the VIX has only closed below 10 five times, and each of those five times has come in the last month.
However, the market is not without risks right now. Gold has rallied 6.5% since May 9th. Treasuries have rallied, pushing rates to below 2.15. So, the market is currently in a risk off mode while equities are in a period of historically low risk. The VVIX (the VIX of the VIX), for its part, is not sounding the all clear signal, 87 is in the medium range for VIX volatility. Tomorrow we have a potential market moving event with James Comey’s testimony to Congress. The last time Comey’s name was in the news, we saw the VIX move from 10.5 to over 15 in one trading day (a 50% increase) on a day where the market was down over 2%.
…